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Expanding Our Thinking — Noncash Gifts are Key to Fundraising Growth

As fundraisers, we are trained to focus on cash gifts. After all, they are the easiest type of gift to make, right? I recently heard a presentation providing some very good evidence that from our donors’ perspective, this might not be the case at all. Professor Russell James III, the Director of Graduate Studies in Charitable Financial Planning at Texas Tech University, analyzed over a million tax returns of both individuals and nonprofit organizations in an effort to see why some organizations report what seems like astronomical growth in their fundraising programs, while others report basically flat fundraising attainment over years. The results were eye-opening: nonprofit organizations that accepted noncash gifts, including appreciated securities, grew their fundraising 6 times faster than organizations that only accepted gifts of cash. Importantly, this increase was seen in organizations at every level of fundraising. Professor James research makes it clear that noncash gifts are key to growth in any fundraising program.

If we take a look at the asset portfolios of our wealthy donors, we begin to see why cash gifts may not be the easiest types of gifts for these individuals to make. As net worth increases, the percentage of that net worth held in cash decreases, because more and more of the high net worth donor’s portfolio will be held in appreciated securities and often real estate. In general, cash only comprises 6-8% of the value of assets held by individuals, yet 90% of charitable gifts are made with cash. There’s our opportunity as savvy fundraisers.

Certainly there are challenges in accepting noncash gifts, especially gifts of property other than appreciated marketable securities. Your department, or your outside advisors, needs to understand and be ready to deal with various challenges, including:

  • tax and legal issues
  • environmental concerns for gifts of real estate (take note that environmental problems are extremely rare, especially those that aren’t fairly obvious during the course of a simple initial audit)
  • management of noncash assets until your organization can resell them (this tends to be a concern more about staff work load than any significant financial risk)
  • cumbersome internal gift acceptance processes (if you’re serious about accepting noncash gifts, you’re not going to be able to move fast enough to accept your donor’s offer if you have a board level gift acceptance committee in the way)
  • inaccurate perceptions of risk vs. reward (remember, even if you have to sell an asset at below market value, your organization is still receiving a financial benefit because your cash investment in the asset is likely extremely low)

Here are some practical tips for mitigating risk:

  • Don’t accept gifts of animals or livestock of any kind
  • Don’t accept gifts of anything involved in transportation (cars, boats, motorcycles, snowmobiles, etc.)
  • Don’t accept gifts of timeshares or cemetery plots
  • Have some outside experts readily available to help you with the tax and legal concerns, and to help manage property/assets until sale if your staff is too busy to take this task on

I encourage you to read Professor James research for more information on the amazing opportunities presented by the ability to accept noncash gifts for your organization.

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A Window to Gratitude

As we approach the holiday season, many of us are feeling disconnected from the people, activities, or things that ground us and make us feel part of a greater whole. So, on this day before Thanksgiving, in the year 2020, I wanted to tell you about Window Swap. Window Swap is an amazing website that allows you, with a simple click, to look out the windows of fellow users all over the world. Right now I’m gazing out Derek’s window, through some basil and rosemary plants, onto an unusually quiet street in New York City, with the background noise of life providing comforting white noise. I’ve been to Prague, to the UAE, to Geneva, and to Kentucky this week. I love having my windows open at home, now office, so Window Swap is a perfect backdrop to my day.

Click here to find a new window to the world. There’s no registration or information sharing required.

May you find gratitude, find the little things that sustain your soul, find safety, and find joy.

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PPP Loan Forgiveness Update

More details regarding Paycheck Protection Act loan forgiveness emerged from the US Small Business Administration last week that make it much easier for those who received PPP loans of less than $50,000 to apply for forgiveness. While the loan forgiveness process will still be administered by your lending bank and is not automatic, as some had hoped, stay tuned for a much simpler form for use with smaller loans. Robert Jackson from the Apple Growth Partners COVID-19 Response Team wrote this recent post summarizing the new process.

New PPP Loan Forgiveness Form from the SBA

By admin News / October 12, 2020

Monday, October, 12, 2020

Over this past weekend, the U.S. Small Business Administration (SBA) posted a new loan forgiveness form to the public for those who received a Paycheck Protection Program (PPP) loan of $50,000 or less. The new form, form 3508S, is much simpler than both the long form (form 3508) and the EZ form (form 3508EZ). While the form states that it is for those who received a PPP loan of $50,000 or less, note that a borrower cannot use the new form if the borrower, together with their affiliates, received total loans of $2,000,000 or more.
 
In addition to the $50,000 threshold, a borrower can use the new form if –

  • The requested forgiveness amount was used to pay costs that are eligible for forgiveness;
  • The borrower used at least 60% of the requested amount on payroll costs; and
  • The requested forgiveness amount took into consideration the applicable owner-employee or self-employed individual/general partner compensation caps.

The borrower does not need to show any calculations of the loan forgiveness amount on or with the form, as they would have to do with the long form or the EZ form. Furthermore, the borrower is exempt from applying the complicated loan forgiveness salary and FTE reductions when using the new form 3508S.

With the new form also comes simpler procedures for lenders.

As noted above, the $50,000 threshold applies to the original loan amount, not the amount of forgiveness being requested. It is also not a blanket forgiveness, which is something that lenders had been pushing for in the past few months. A borrower must still retain records that support the calculation of the forgiveness amount being requested.

The announcement of the simpler form comes about a week after the opening of the loan forgiveness season by the SBA. While it is not what many borrowers and lenders were hoping for, it will still ease the time burden on smaller businesses and their lenders. Keep in mind that banks are using their own equivalent online forms for loan forgiveness applications, so eligible borrowers should first check with your bank to see when the new form will be available to file with your bank.

To access the newly released Form 3508S, click here.
To access the instructions to Form 3508S, click here.

Contact our COVID-19 Response Team for questions on the new forgiveness forms. 

Robert Jackson, CPA

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New Data – Nonprofits, Benchmark Against Your Peers and Push Your Mission Forward

This week we’d like to share a blog written by the Nonprofit Practice Leaders of the global accounting firm, BDO, and the BDO Institute for Nonprofit Excellence. Interestingly, BauerGriffith was founded after the financial crisis of 2008, at a time when it became clear that nonprofits must not only operate with a clear view of their mission, but also a clear business strategy. Successful nonprofits have made that shift, which has, we believe, allowed many to achieve stability in their operations, if not thrive, in the wake of the economic challenges brought on by the pandemic. This survey report fleshes out this concept and presents some very helpful information for any nonprofit as they plan for the next 12-18 months — and beyond. We thank our friends at the BDO Institute for Nonprofit Excellence for their service to the sector.

By Nonprofit Practice Leaders | June 17, 2020   

From the global pandemic to growing economic uncertainty in the midst of an election year, nonprofits are being called upon—and challenged—like never before. Unsurprisingly, these organizations are rising to the occasion, adapting their programs and delivering aid to critical areas of need. But the journey is far from over, and now more than ever, nonprofit organizations need to be able to sustain their critical work.

The BDO Institute for Nonprofit ExcellenceSM is proud to announce its fourth annual benchmarking survey, Nonprofit Standards. The survey is intended to help nonprofit leaders prepare for the future, balance a nonprofit heart and business mindset, and gauge their well-being across key areas of focus, including crisis response, technology, downturn preparedness, policy and funding.

To learn how your nonprofit measures up, download the full report.

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Nonprofit Compliance Reporting Checklist

In representing small, mid-size, and even larger nonprofits, we often find the array of periodic compliance reporting can get lost. Sometimes this occurs because an individual is named the contact person for notifications, and that staff person or volunteer is no longer working. While most delinquent filing issues are fairly easy to fix, a pattern of noncompliance can cause issues over time, especially if you find yourself faced with other legal issues. Here’s a handy, though not absolutely comprehensive, checklist to help keep you on track, designed with 501(c)(3) public charities in mind.

  • IRS Form 990. Every 501(c)(3) organization must file a 990 in some form or another, even if you have no activity at all during a tax year. Larger organizations will file the full 990, and this rarely slips through the cracks. This is a big, complicated form, and we strongly recommend using a tax professional to complete or at least review prior to filing. Smaller organizations can file the 990EZ, which is much easier to complete and can be done by competent staff. Organizations with less than $50,000 in receipts during any year can file the 990-N, sometimes referred to as the 990 postcard. It is a very simple form, with just a few questions, and is filed on line. IMPORTANT NOTE: Even if you have $0 in revenues, you must file the 990-N every year. No exceptions. Failure to do so will result in loss of your 501(c)(3) tax exempt status. Our friends at the IRS are completely on top of this, so don’t think they’re not watching!
  • State Attorney General Filings. Nonprofit organizations are governed in most states by the state attorney general’s office, with powers arising out of their general authority over consumer protection. The reasoning here is that nonprofits are custodians of charitable funds for the benefit of the public, so the attorneys general oversee the nonprofits on this basis. In Ohio as in several other states, there is an annual filing regarding fundraising, which is required regardless of whether or not you do any fundraising. The attorney general’s office will also get involved if you seek to remove or change donor restrictions or designations on gifts.
  • Secretaries of State. You should also be aware of the need periodically to file a statement of continued existence or similar filing with your secretary of state’s office, confirming you are still in business at some level. Changes in your structure, including mergers or dissolutions, are also dependent on approval by the secretary of state.
  • Other State Compliance. Depending on the type of fundraising you do, you may have filings with your state department of insurance for charitable gift annuities, or with your state tax authority for certain types of charitable trusts.
  • Sales Tax. Yes, you may need to collect, remit and and report sales tax on items sold in your gift shop or cafeteria if you sell to the public on a regular basis.

State attorneys general are taking a greater interest in the management of nonprofits, with Ohio being among the most proactive in compliance and enforcement. Particular areas of interest include adherence with board fiduciary duties, conflicts of interest, self dealing and related party transactions, investment management, and accurate/adequate disclosure of the use of charitable funds.

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A Guide to Standing Committees for Nonprofits — Other Committees

Over the last several installments in this series, we’ve examined the typical array of standing committees of a nonprofit board. Standing committees are generally those that align with a director’s specific fiduciary duties relating to governance, conflicts of interest, high level strategy determinations, and various aspects of fiscal management. But boards, through a well organized committee structure, can be very helpful in other areas as well.

A well written code of regulations will give your board the authority to create other committees to support the work of your organization. I generally recommend these other committees not be designated as standing committees, but that should not create a perception of decreased importance for their work. Program, policy, external relations, and other committees that give more direct support to the work of your organization’s staff can increase your organization’s effectiveness by helping staff prioritize activity and by using loyal board members in a more hands on role. More than other committees, the focus and roles of these types of committee will change, sometimes frequently, based on the needs of the organization, hence my reluctance to designate them as standing committees.

Some basic tips to ensure other committees operate effectively include:

  • Review their charters annually to ensure their tasks align with the current work plan or strategic plan
  • Ensure open lines of communication with board leadership
  • Recruit experts to serve on subject matter committees (which can be a great tool for cultivating new board members)
  • Allow staff members in various levels of leadership to interact with the committee

In addition to standing and regular committees, subcommittees with a very particular focus on an issue or program element can also be an effective way to utilize talent and expertise on your board, recruit non-board volunteers to assist, or to create advisory groups to help your staff resolve sticky issues. Often work groups or task forces, established on a temporary basis, can provide excellent support for time limited projects, like crises, events or advocacy issues.

Don’t forget, your committee structure should be determined after a thorough examination of your staff structure and needs for board support. Don’t create committees just to give your board something to do. Create committees to help your staff get their work done effectively.

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A Guide to Standing Committees for Nonprofits — The Development Committee

I may be biased, since I’ve been both a professional and volunteer fundraiser at various points in my career, but I think the Development or Fundraising Committee is, next to the Governance Committee, the most important standing committee of a nonprofit board. After all, if nobody is raising money, none of the other committees have anything to do! But while this committee is vitally important to the financial sustainability of your organization, it can also be the most challenging committee to manage and implement.

In developing a strategy to mobilize an effective Development Committee, I suggest we start with two premises or principals. The first premise is that fundraising is the responsibility of the whole board; every member, without exception, should play some role in raising funds for your organization. The second premise is that the primary responsibility of the Development Committee is to create and foster a culture within your organization that allows your full board to feel empowered, confident, and (dare I say) comfortable with their role in the fundraising process.

To me, this means the Development Committee is not created to be the small group of board members who do all of the asking during your various campaigns and initiatives. At the end of the day, they may be those people, but that shouldn’t be the primary reason people are asked to sit on the Development Committee. A structure like this will likely give the impression that the rest of the board isn’t needed in the fundraising process. Rather, consider these primary areas for your Development Committee to assist staff:

  • Create a development plan that is reflective of the goals and needs of your the organization
  • Communicate and cultivate buy in for the organization’s case for support among the full board
  • Create tools and resources for the board to use in their own individual fundraising efforts
  • Allow each board member to identify the specific tasks and roles they will play in the fundraising process
  • Create a sense of accountability for achieving those tasks and roles

Consider this sample description of the Development Committee:

Development Committee

The Development Committee shall: (a) review, approve, and support goals and strategies for, and oversee the progress of, the Corporation’s fundraising initiatives, including the Annual Fund, major and planned gifts, capital, endowment, and comprehensive campaigns, and events, in consultation with the Finance Committee; (b) support and assist the Development Office in its efforts to engage members, donors and supporters in the activities of the Corporation, and to cultivate, solicit, and steward donors; and (c) work with the Governance Committee to ensure that new Directors understand and accept their responsibilities in fundraising and development.

Some things to note:

  • I encourage you to state specifically the relationship between the Development Committee and the Governance Committee, to ensure fundraising is part of the recruitment, training, and board evaluation process.
  • I also encourage you to state specifically the relationship between the Development Committee and the Finance Committee, so that the contributed revenue goals in your budget are well thought out, well supported numbers informed by the needs of the organization and the donor resources available.
  • Remember that solicitation is only one relatively small part of the donor cycle. Encouraging and empowering board members to cultivate and steward donors can increase board involvement in fundraising and open the door to more good opportunities for staff to solicit.

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Competitions and Contests — Legal and Practical Considerations

Competitions, contests, drawing, raffles, auctions — all are frequently used tools in a nonprofit organization’s fundraising arsenal. What we may forget, though, is that both the IRS and state governments have laws and regulations applicable to these types of activities, which must be considered before launch. In addition, like campaigns or other fundraising initiatives, there are practical considerations to be addressed to ensure your efforts achieve the desired results.

The benefits of competitions, contests, drawings, raffles and the like include:

  • ability to reach new markets, raise visibility, create excitement
  • tapping into a revenue source other than philanthropy
  • for competitions, the opportunity to seek new ideas or creative input to address issues related to the organization’s mission

Challenges to watch out for include:

  • need for comprehensive, explicit rules, which you cannot change midstream
  • ability to publicize to the right audience to ensure your pool of entries will achieve your desired goal
  • no ability to cancel
  • requirement that all prizes be awarded, regardless of ultimate quantity or quality of entries
  • requirement of a public benefit (i.e., fundraising for your charitable mission or the development of a response to an issue of broad consequence)
  • conflicts of interest between competition applicants and judges
  • limitations on employee and related party participation

Rules relating to contests and competitions, where winners are selected based on merit or skills based criteria, and raffles or drawings, where winners are selected based on chance, will be subject to different rules and regulations by state and local governments. Those rules and regulations can include required disclosures, as well as registration and reporting requirements.

If your organization wants to consider a contest, competition, drawing or other event of this type, be sure to allow three to four months for planning. Also be sure to include a marketing and communication strategy, as well as clear goals and objectives for your event.

McKinsey and Company authored an excellent article on competitions and philanthropic prizes, which we commend to your reading. You can find it by clicking here.

For a good analysis of the considerations behind charitable auctions, check out this article from Blue Avocado, a magazine of the Nonprofits Insurance Alliance.

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A Guide to Standing Committees for Nonprofits — The Audit Committee

The Audit Committee is the final standing committee in the governance structure with responsibility for financial oversight of a nonprofit organization. This committee’s role is fairly simple — for organizations large enough to require audited financial statements, this committee supervises and reviews the auditors in the preparation of those annual financial reports.

The following is a sample description of the duties of the Audit Committee:

Audit Committee

The Audit Committee shall: (a) recommend the selection of outside auditors to the Executive Committee; (b) annually review the terms of engagement of outside auditors; (c) review and evaluate the Corporation’s accounting and financial controls with the President, the Chief Financial Officer, and outside auditors; (d) obtain an annual report from the outside auditors regarding the adequacy of such controls; (e) review the results of the annual audit with the President, Chief Financial Officer, and outside auditors; and (f) report annually to the Board on the results of the audit. 

Why is a separate audit committee important? Aside from supervising the independent, outside audit itself, the audit committee is also generally responsible for establishing, reviewing and overseeing the organization’s accounting and financial policies, as a check and balance to the Finance Committee, which is the group that monitors financial performance to budget (oversimplified, but you get the idea). According to a report of the National Association of Corporate Directors Blue Ribbon Commission on Audit Committees, “The independent audit committee fulfills a vital role in … governance. The audit committee can be a critical component ensuring quality reporting and controls, as well as the proper identification and management of risk… Its critical role as guardian of … integrity puts the audit committee at the core of the challenge of governance.”

For an organization not requiring a formal audit, the Audit Committee role can be assumed by the Finance Committee. However, note the importance of the independent review of policies, even if those fiscal policies may have a negative effect on performance to budget. Directors serving on a combined Finance and Audit Committee must be constantly vigilant regarding these potentially competing interests.

The accounting firm BDO Institute for Nonprofit Excellence published this very helpful article on the function and necessity of the Audit Committee, which you can find by clicking here.

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A Guide to Standing Committees for Nonprofits — The Investment Committee

Last week we discussed the role of the Finance Committee for nonprofit organizations. Now we’d like to take a quick look at the Investment Committee, which generally has responsibility for overseeing the invested assets of an organization.

An Investment Committee can provide a good check and balance to ensure that restricted or reserved assets are properly stewarded for their intended purpose. The most common type of assets in this category would be your endowment, whether it’s a true endowment or a board restricted fund. An endowment is meant to have some degree of permanence, so it’s important to make sure the assets aren’t depleted just to balance the budget or cover routine expenses. In addition to an endowment, organizations sometimes have an investment account with less formal restrictions, but that operates more like a savings account may to an individual.

The Investment Committee:

  • Creates an investment policy to reflect the risk tolerance of the organization and provide guidance on the general portfolio makeup of the account
  • Creates a spending policy to clarify how much of the account can be drawn each year and how that amount is determined
  • Monitors the performance of the organization’s investments
  • Helps moderate the conflicting desires to create a large reserve fund that can provide consistent support to the operating budget through the yearly draws, and the desire to spend the money to balance budgets and expand programming

The following is a sample description of the Investment Committee:

The Investment Committee shall: (a) recommend policies to the Board concerning the management and use of the Corporation’s assets, including its endowment funds; (b) review and assure compliance with such policies that are adopted by the Board; (c) select a professional investment advisor to assist the Committee with periodic evaluations of the investment performance of assets, asset allocation, selection and monitoring of investment managers, and the execution of its responsibilities; (d) select and monitor the performance of investment managers and custodians; (e) for planning and budgeting purposes, recommend a policy for determining the annual transfer of funds from the any endowment funds to the operating or program budget; (f) report to the Board at least annually on the management and performance of endowment assets versus relevant benchmarks; and (g) if authorized by the Board, develop policies and guidelines for, and monitor the performance of, investments in any retirement or pension plan for the benefit of the Corporation’s employees.

The Investment Committee can be a good place for non-board volunteers to serve in an advisory capacity, even as voting members. As part of your board’s overall duty to manage the organization’s finances, though, it is important that any policies created by the Investment Committee be recommended to and approved by the full board.

The Investment Committee can be chaired by a vice chair of the board, or the assistant treasurer, or another officer or board member. However, if your treasurer chairs your Finance Committee, make sure he/she does not also chair the Investment Committee, in order to preserve the value of the checks and balances this committee is meant to create.

If you’re managing a smaller organization and have been reading this blog series, you may have begun to feel that I have suggested more standing committees than you have members of your board. Certainly there is room for overlap in the committee membership, and as I mentioned above, the Investment Committee is a place where non-board member volunteers can be effective. If you do have invested assets, though, I strongly recommend against operating with a combined Finance and Investment Committee. It may be possible to combine the duties of the Investment Committee with the Executive Committee. You may also want to make the Investment Committee a “committee of the whole”, which means your full board would take on these responsibilities.

Creating your investment and spending policies is very important work, and in a future post, we’ll take a look at some of the big questions to be considered when establishing these guidelines for your organization.